What does staying off social media have to do with an audit?

This article looks at why the Canada Revenue Agency may be looking at taxpayers' social media accounts.

For most people, social media is a fun way to keep in touch with friends and family. However, for the Canada Revenue Agency (CRA), social media can also provide a wealth of evidence about whether an individual may have problems with his or her tax return. While it may sound surprising to hear, the fact is that what individuals post on social media could eventually be used against them by the CRA. Posts made to social media could inadvertently contribute to the triggering of a tax audit and, ultimately, could wind up costing one a hefty tax bill. Below is a look at why the CRA is so interested in peoples' social media accounts and what taxpayers can do about it.

Why the CRA loves social media

Sadly, the CRA is not looking at the social media accounts of taxpayers in order to make new friends. As the Financial Post reports, the CRA relies on an auditing technique known as Indirect Verification of Income, meaning that the government agency, instead of simply asking directly for verification of one's income, can rely on indirect methods of confirming whether or not an individual has been truthful on his or her tax return. As Yahoo Finance points out, although the CRA will not confirm that it uses social media for auditing purposes, it does say that anything that is in the public domain - including social media posts - can be used for auditing purposes.

It should not come as much of a surprise that the CRA would find social media useful for auditing purposes. After all, if an individual is reporting an income of just $30,000 but then posts images of him or herself at lavish restaurants, with a brand new yacht, and spending time at a five-star Caribbean resort, then the CRA is going to be interested in how that individual is able to afford such a lifestyle.

What to do?

Of course, there may be legitimate reasons for why one's lifestyle on social media doesn't seem to align with one's tax return. However, if it happens that a discrepancy between one's reported income and actual income arises then options are available. In such cases, it may be worth talking to a tax lawyer about the CRA's Voluntary Disclosures Program (VDP), which allows individuals to report their previously undisclosed income, unfiled returns, or past errors without being subject to the steep penalties that may otherwise result.

Talking with a lawyer

The VDP is not available to everyone, so it is a good idea to talk to a lawyer about the program to see if one is eligible. Likewise, during any tax audit or dispute with the CRA, consulting with a tax lawyer can prove highly beneficial. A lawyer is able to deal directly with the CRA on the client's behalf and can help resolve a tax issue in an efficient and effective manner.